News, Indian economy & everyday tit-bits by Ankur Aggarwal since 2005

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One Belt, One road (OBOR) & China Pakistan Economic corridor (CPEC)

I am not able to understand is India is more unhappy about 29+ countries collaborating n this OBOR network or creation of CPEC (China-Pakistan economic corridor)? The way I see it, there are three kinds of actors in the art of international diplomacy: the heavyweights, that can lean and change the world balance; the opportunist, who are able to make the most of the situation and the whiners, who can make the worst of any situation. The Indo-Pak-China diplomacy is able to capture the best of these three worlds. Indian myopic minds do not have ability to comprehend beyond cows & Pakistan. This is probably the reason why our international clout is small compared to the country’s size & might. India has more than a dozen neighbors but unfortunately, we do not have warm relationships with any.

Indians have already been mute bystanders when America & China made it realize that “Indian Ocean is not India’s Ocean.” China & America have larger navy stationed there and control more ports than we do. While Indian coast guard is busy imprisoning a few fishermen gone astray, the bulk of the piracy & drug trade is tackled by these foreign countries who are thousands of miles away. India is closer geographically, culturally & linguistically to Central Asia than any other super-power. It has been repeatedly offered to play an active role in the Central Asia but except for exporting a few able bodies citizens we have not been able to scale up. Silk Road or OBOR project is already taken off and the trillion-dollar question is how we can benefit from this opportunity?

OBOR is an economic corridor that links Beijing with London costing China 150 billion dollars a year. Critics claiming that this is an economic folly because of the fact that the freight through this train is going to be more expensive than sea and 18 days is too long for a passenger train ride. However, the bulk of the trillion dollars is through loans & direct investment is in the Central Asia and connecting it with the rest of the world. This project is like an adrenaline shot for the China economy fearing slowdown in construction & export led boom. It hopes to repeat the success of the Hoover and other engineering marvels undertaken by governments to change the fate of the world.

Hoover Dam construction helped America greatly during depression. It directly absorbed thousands of unemployed workforce during the period 1931 to 1936 and created even greater indirect unemployment in steel mills, concrete factories, capital goods & machinery industry that were hit hard due to the economic slowdown. The $49 million that US government spent in 1931, helped create billions of dollars for the US economy. Today, 80 years after its commissioning, it still generates about 4.3 billion (KVH) annually in clean & cheap electricity, irrigates 400,000 hectares of land and serves 18 million people. All this wealth created in a region that was hot (120 degree Fahrenheit in summer) with less than 5 inches of rainfall and riddled with rattlesnakes & scorpions. The conditions were so harsh that the original surveyor, J. G. Tierney drowned and died during the scouting of ideal spot and today millions are able to live there because of the water & electricity it created.

Today China is facing a similar crisis. In 2016, it produced 2.35 billion metric tons of cement and 808million tons of steel which is more than half of the world’s productions. This is 5X more steel than whole of EU and 10X more cement that India (the world’s second largest producer). Hence there is no cheap exports that can help China absorb the excess due to slowdown of the China construction boom. Its 3.5 trillion of foreign currency is primarily in USA where it is barely yielding any returns. In addition, the growth in the traditional markets has slowed down with 2016 showing the most sluggish growth (8%) in this decade. The strong yuan, rising standard of living and demand for luxury & imported items is putting pressure on balance of trade (exports less imports).

Central Asia is an untapped territory ripe for investments & exploitation through linkages. Russia which traditionally dominated the region does not have the resources or the focus to develop the region. Its history of imperialist domination and occupation has not left it with much goodwill. China can easily export materials for the infrastructure, machinery & equipment for the various factories, refineries & processing plant to widen its resources supply base. Tap the local population (which has been witnessing declining wages & standard of living) to combat its own ageing population & decline in workforce participation (a problem witnessed by all countries when they transition to the develop nations league). Essentially with most of Africa & Asia politically & economically aligned to it, it will be able to create barriers for anybody trying to displace its position as the world’s second largest super-power.

EU whose key nations are still debating the issue of stay-vs-exit, controlling the flux of refugees & bailing out its own members are unlikely to invest heavily beyond the member states. Post the cold war, Europe invested heavily in Eastern Europe, but Turkey seems to be the border of its economic influence. America has huge influence in the Middle East & North Africa because of its thirst of oil. It did develop strong ties in the region esp. Pakistan & Afghanistan to combat cold war but not able to exploit the region fully. The new western political leadership are inward looking and are unlikely to invest in anything other than walls higher than skyscrapers.

Being land-locked & difficult terrain further adds to the cost of the economic corridor being opened between Central Asia and the west. After decades of neglect in infrastructure and exploitation from the communist the local governments are welcoming China with open arms. So many local jobs are being created by soft loans, infrastructure projects which is linking them to the global markets. India might not be able to replicate the long term strategy & planning required to match the international clout that China hopes to gain. However it needs to evaluate what is more advantageous for it. Non-alignment to any of the three power blocks America, China & Europe is a good strategy if you believe that the three will fight & annihilate themselves, but in all other cases its plain stupidity & arrogance to allow one to be isolated.

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